Welltower settlement delays start of former executive at HCP

Real estate investment trust Welltower has settled a lawsuit against a former employee, and the terms will push back his start date with a competitor about two months, executives told shareholders and analysts participating in a third-quarter earnings call on Tuesday.

The Toledo, OH-based REIT sued Scott Brinker on May 15, the day Irvine, CA-based REIT HCP announced that he would join the company on Jan. 4, 2018. Brinker had left Welltower Jan. 3 after having worked there since July 2001 in various investment and portfolio management-related capacities, most recently as executive vice president and chief investment officer.

Welltower claimed that Brinker breached a noncompete agreement. The REIT subsequently filed an amended complaint in July, claiming that Brinker forwarded confidential Welltower documents to his personal email account before leaving the company.

“Some of the terms are confidential, but I can say that under the terms of the settlement, Mr. Brinker is not permitted to begin work as the chief investment officer of HCP before the date that we issue our Form 10-K for our fiscal year ending Dec. 31, 2017, which will be on or after March 1, 2018,” said Matt McQueen, Welltower senior vice president, general counsel and corporate secretary.

Welltower CEO Thomas DeRosa said that the REIT sought to protect shareholders.

“The first principle of how we approach everything at Welltower, including litigation, is that we do everything we can to protect our shareholders,” he said. “That's what we will always do as a company, and you should not accept anything less than that.”

The docket at the Lucas County Court of Common Pleas in Toledo shows court action on the case as recently as Nov. 3. A note in the file dated Tuesday noted: “Case reported settled, parties having represented to the court that their differences have been resolved.” The case was dismissed without prejudice.

Sagora now a RIDEA partner

In other news, Welltower announced that it had converted 11 previously triple-net leased properties of Fort Worth, TX-based Sagora Senior Living into a RIDEA structure.

The REIT also expanded its relationship with the operator by acquiring three more private-pay seniors housing properties in the Houston and San Antonio, TX, areas in an off-market transaction. The properties, built in 2013, 2014 and 2015, also are part of the joint venture.

Mercedes Kerr, Welltower executive vice president of business development, said that the transitioned assets had “outsize growth” (higher lease coverage) compared with the remaining seniors housing triple-net portfolio.

Fifteen other Sagora properties remain in triple-net leases because they don't have the same growth prospects, she said.

“We built our business model around owning RIDEA assets. For Welltower, we see that as a lower-risk structure because we built the full complement of skills, tools, technology, to maximize the value of real estate in a RIDEA structure,” DeRosa said. “So you will continue to see us look for operators that we may incubate in a triple-net lease format to transition to a RIDEA structure, and you'll see us likely move away from operators where we don't see the opportunity to transition the operator or the real estate into a RIDEA structure in the future.”

The company does not plan to convert its entire triple-net portfolio to joint ventures, executives said.

Natural disasters affect communities

Kerr said that 100 outpatient facilities and seniors housing communities in Welltower's portfolio were affected by Hurricanes Harvey and Irma and the California wildfires. The REIT views the expense as a cost of doing business and so has reported them among normal business expenses, she said.

DeRosa said that Welltower donated $100,000 to several operators to support employees who were affected by the natural disasters.

Brookdale discussions continue

DeRosa said that Welltower's discussions with Brookdale Senior Living continue as the REIT looks to “maximize whatever value option is in the best interest of our shareholders.”

Welltower considers its relationship with the company a financial transaction and does not consider Brookdale an operating partner, he said.

“Our Brookdale exposure largely arose from the fact that Brookdale acquired some of our smaller operators,” DeRosa said. “We're cheering for Brookdale. We're hoping they can turn their business around, because the fact is, their issues affect the view of the entire industry.”

DeRosa said that the company is not one that it expects to change from a triple-net structure to a RIDEA structure but said “never say never.”

“We're looking always at alternatives,” Kerr said, “and we take comfort in knowing that two-thirds of our portfolio with Brookdale is either in California or in Washington or a [certificate of need] state. And we have excellent operators in every one of those regions who could step in and take over the buildings if the need ever were to arise.”

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